Hard money lenders are individuals or companies that loan money to prospective buyers of real estate. The collateral is generally the real estate in question. The service is most often used by real estate investors who need the hard money to close real estate deals. Having a hard money lender already lined up gives real estate buyers an edge in any deal they are putting together. Flippers, especially, find this an invaluable service to fund the properties they wish to acquire quickly and easily. Traditional loans, through banks and other financial institutions, are not suitable for these types of ventures.
Investors require earnest money and/or funds to close deals, so if they form a relationship with hard money lenders, as they put deals together, they stand a better chance of succeeding. Using other people’s money has long been an accepted method of real estate investing, but it is not without risks. That is why investors must demonstrate to potential lenders how they will profit.
The general goal of real estate investors is to purchase properties to improve or increase wealth and create a burgeoning business. The goal of the hard money lender is to put his money to work for him. Real estate investment is one of the safest ways to foster wealth, and hard money lenders fill a need that would not otherwise be met. Those who have money to invest will certainly obtain a better return than on savings accounts or Certificates of Deposits. This does not mean it is without risks.
The caveat to the real estate investor is to be aware of the higher interest rates that are a hallmark of hard money lenders. But even with higher rates, a shrewd investor can build a sound portfolio. The caveat for the lender is to be as certain as he can be that the investment will pay off. Traditional banks, while they have better rates, cannot close a deal as quickly as hard money lenders.
Different types of investors require the use of hard lenders. Commercial investors often need them to bridge the gap between what a traditional bank will loan and the asset they are trying to purchase. Builders and developers need funds to purchase land on which they plan to build. Real estate investors need funds to purchase and/or rehab properties to rent or “flip.”
Though hard money lenders charge higher interest rates, the benefits far outweigh the negative aspects of the experience. Willingness to take more chances and speed of funding are two of the benefits of seeking out hard lenders.
Real estate investors and lenders have a reciprocal agreement, a win-win situation. The efficiency of using hard money works for all involved. Usually, hard lenders will lend a percentage of the value of the property, and the length of the loan is much shorter than that of a traditional loan.
While the terms are used interchangeably, hard money differs from hard money in that hard money lenders are generally easier to find because they advertise. Hard money lenders are usually people with whom you have a relationship. They loan money based on their belief in you.
Hard money lenders in San Fernando Valley loan money in varying amounts for property purchases, construction, rehabbing and refinancing. Each has its own set of parameters with which residential and commercial borrowers must comply. Investors with low credit scores or whose income would not pass muster for a traditional loan find that they may have better luck with a hard lender. Borrowers can quickly determine if they can secure a loan and can move forward swiftly with the real estate purchase.
The relaxed requirements and adaptable guidelines of hard money lenders can help the real estate investors ensure that funds will be available when they need them. The application process is simple, and while the loan must be repaid quickly, it is a resource that investors can use over and over.